Pay BillMississippi has introduced a new incentive for small employers that offer health coverage through an Individual Coverage Health Reimbursement Arrangement. An Individual Coverage Health Reimbursement Arrangement (ICHRA) lets an employer reimburse employees for individual health insurance premiums and other eligible medical expenses instead of offering traditional group coverage to that employee’s class. Employers set the benefit amount, while employees choose coverage through the ACA Marketplace or directly from an insurer. Properly substantiated reimbursements are generally tax-free to employees, although an ICHRA offer can affect eligibility for the premium tax credit.
Under House Bill 343 (2026 Regular Session), employers with fewer than 50 employees may qualify for a nonrefundable income tax credit of up to $400 per covered employee in the first year and up to $200 per covered employee in the second year, subject to contribution requirements. Unused credit may be carried forward for up to ten years. Because total credits are capped at $1 million per fiscal year and awarded in the order that state returns are filed, timing matters. Additional information regarding who qualifies and how the credit works is provided below. Please reach out to your BMSS Tax Advisor if this applies to you by visiting our website or calling (833) CPA-BMSS.
Excerpt from the 2026 Tax Incentive Booklet:
Mississippi Tax Incentives, Exemptions, Credits & Rebates
A.23. Individual Coverage Health Reimbursement Arrangement Tax Credit
An income tax credit is available to any employer, with fewer than fifty (50) employees, providing an Individual Coverage Health Reimbursement Arrangement (ICHRA) to their employees.
The ICHRA Tax Credit is an incentive available to businesses that provide an ICHRA health plan rather than a traditional employer-provided health insurance plan. The credit amount applicable for each employee is limited depending on the year in which it is taken.
For the first taxable year, qualified employers may claim a credit up to four hundred dollars ($400) per each covered employee provided that the employer’s ICHRA contributions equal or exceed:
- The level of benefits provided for an employee in the prior benefit year, or
- The amount contributed to an employee’s previous employer-provided health insurance plan for the prior benefit year.
For the second taxable year, qualified employers may claim a credit up to two hundred dollars ($200) per each covered employee.
Every three (3) years after claiming a credit against a covered employee, qualified employers are required to submit a report to the MDOR detailing:
- Whether the employer continued to offer an ICHRA plan or reverted back to a traditional employer-sponsored plan; and
- The level of benefits provided under the ICHRA for the previous three (3) taxable years.
The credit is not refundable and may not exceed the employer’s tax liability for a given taxable year. However, any excess credit may be carried forward for up to ten (10) years. It is more advantageous to use the earliest year’s unexpired credit first.
The total amount of tax credits allowed under this chapter shall not exceed one million dollars ($1,000,000) in a given fiscal year and are awarded to employers on a chronological basis based on the filing date of the employer’s annual state tax return until the limit has been reached. This credit is effective January 1, 2026.
HOW TO CLAIM THE CREDIT
When filing the state income tax return claiming the credit, attach:
- a report detailing the level of benefits provided in the prior benefit year or the amount contributed per covered individual to the employer’s previous health insurance plan during the prior benefit year;
- a Mississippi Tax Credit Summary Schedule showing all credits taken and any credit carryforward; and
- a copy of the member’s or owner’s distribution/allocation agreement.
The ICHRA Tax Credit Code is 48.
The ICHRA Tax Credit is authorized under House Bill 343 of the 2026 Regular Session. Revised September 1, 2026